One area of aviation that I’m not too familiar with is the process of airline catering. In light of the catering strike at Heathrow that crippled British Airways, Lynne Kiesling asks why airlines don’t hire multiple caterers.
- If the pricing/reliability benefits outweigh the economies of scale, they should be willing to hire different caterers. They can have them specialize in different terminals, or hire one caterer to do meals for flights to Asia, one for Middle East, one for Europe and US, etc.
Then, even if you are still facing a duopoly, at least you contract with both of them and you increase your probability of getting a Bertrand outcome.
Either I’m missing something, or they’re not thinking very strategically. Which is it?
Maybe someone who knows more about airline catering than I do can explain dominant behavior of contracting with a single caterer?